The Dow Jones (DJIA) is set to open Wednesday’s trading session in positive territory following a surprising inflation update.
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June’s Producer Price Index (PPI), a measure of wholesale inflation, was unchanged month-over-month. That came in below the 0.2% consensus estimate and fell from 0.3% in May. PPI increased by 2.3% year-over-year, which was also below the estimate for 2.5% and fell from 2.6% in May. Wholesale inflation measures the prices that producers receive for their goods and services before consumers buy them.
Core PPI, which excludes volatile food and energy items, was flat MoM and increased by 2.6% YoY. Economists were expecting 0.2% and 2.7%, respectively.
PPI and CPI Provide Differing Signals
While PPI remains subdued, June’s CPI increased by 2.7% YoY, the largest increase since February. That suggests that consumer prices are rising at a faster rate than the average selling price that producers receive.
The low PPI and accelerating CPI provide conflicting signals to the Fed, whose job is to combat inflation by adjusting the federal funds rate. Following the PPI release, the odds of a 25-bps rate cut this month are at 2.6% compared to 2.1% yesterday and 14.4% a month ago. With PPI in check, the Fed has more reason to cut rates.
The Dow Jones ETF (DIA) is up by 0.40% at the time of writing.
